- The Washington Times - Thursday, May 14, 2009

TAX TROUBLE

“The barrage of tax increases proposed in President Barack Obama’s budget could, if enacted by Congress, kill any chance of an early and sustained recovery,” Martin Feldstein writes in the Wall Street Journal.

“Historians and economists who’ve studied the 1930s conclude that the tax increases passed during that decade derailed the recovery and slowed the decline in unemployment. That was true of the 1935 tax on corporate earnings and of the 1937 introduction of the payroll tax. Japan did the same destructive thing by raising its value-added tax rate in 1997,” said Mr. Feldstein, a Harvard economist and former chairman of the Council of Economic Advisers in the Reagan administration.

“The current outlook for an economic recovery remains precarious. Although the stimulus package will give a temporary boost to growth in the current quarter, it will not be enough to offset the combined effect of lower consumer spending, the decline in residential construction, the weakness of exports, the limited availability of bank credit and the downward spiral of house prices. A sustained economic upturn is far from a sure thing. This is no time for tax increases that will reduce spending by households and businesses.

“Even if the proposed tax increases are not scheduled to take effect until 2011, households will recognize the permanent reduction in their future incomes and will reduce current spending accordingly. Higher future tax rates on capital gains and dividends will depress share prices immediately, and the resulting fall in wealth will cut consumer spending further. Lower share prices will also raise the cost of equity capital, depressing business investment in plant and equipment.



“The Obama budget calls for tax increases of more than $1.1 trillion over the next decade. Official budget calculations disguise the resulting fiscal drag by treating Mr. Obama’s proposal to cancel the 2011 income tax increases for taxpayers with incomes below $250,000 as if they are real tax cuts. The plan to modify the Alternative Minimum Tax to avoid increases for some taxpayers is also treated as a tax cut.

“But those are false tax cuts in which no one’s tax bill actually declines. In contrast, the proposed tax increases are very real.”

BOOMERANG

“Many Democrats in Congress have pushed for release of documents and the holding of hearings on waterboarding and other interrogation methods,” William A. Jacobson writes at www.legalinsurrection.blogspot.com.

“Putting aside for now whether the release of such information should take place, it appears that Obama started the ball rolling down hill by releasing the interrogation memos. Barring active intervention by Obama, there will be some further level of document release, congressional investigations and public hearings,” said Mr. Jacobson, a law professor at Cornell.

“This presents a problem mostly for Democrats. Republicans who were briefed on the interrogation methods at least will be consistent, for the most part, in maintaining that the methods were lawful and useful. No Republican is going to be harmed politically by the revelations because most Americans support these methods against people like Khalid Shaikh Mohammed. If leaks of a Justice Department report are to be believed, there will be no prosecutions. Republicans are safe politically and legally.

“For Democrats, however, the damage could be significant. Nancy Pelosi already has lost a great deal of credibility from her changing stories. Dozens of other Democrats, including such senior senators as Jay Rockefeller, apparently also were briefed on the interrogation methods and either were silent, approved or encouraged the policy.

“The irony is that a full-blown investigation and hearings will turn mostly on what the Democrats knew, and when they knew it. …

“Where this seems to be heading is: (1) Republicans claim Democrats are damaging national security, thereby setting Democrats up for blame when there is a terrorist attack; (2) Republicans claim the mantle of putting the safety of the country ahead of politics; (3) Democrats claim the mantle of putting politics ahead of the safety of the country; (4) Democrats end up exposing Democratic Party leaders to be untruthful, misleading, deceptive and/or too smart by half; (5) the CIA fights as it always has for its institutional interests in a battle politicians mostly lose; and (6) Democrats turn on each other.”

IMPRESSIVE

“President Obama and his aides continue to impress with their handling of Afghanistan,” Max Boot writes in the Los Angeles Times.

“Not only have they approved a major troop increase and a de facto commitment to nation-building, but now they have shifted personnel to make the most effective use of the added resources and turn around a failing war effort,” Mr. Boot said.

The big news is that Army Gen. David D. McKiernan is out after just 11 months as the top commander. He will be replaced by Lt. Gen. Stanley McChrystal. Just as important, if less heralded, is the decision to appoint Lt. Gen. David Rodriguez, who had previously served in Afghanistan as commander of the 82nd Airborne Division, as the second-ranking commander. His role will be vital: to help the overstretched NATO staff pull together the disjointed war effort.

“When I visited Afghanistan recently, I spent a couple of hours with McKiernan. He struck me as competent but too conventional and too colorless, not the rare kind of dynamic leader who could turn around a campaign in trouble. He was no George Patton, Matthew Ridgway, Creighton Abrams - or David Petraeus.”

RUDY CLOSING GAP?

A new Quinnipiac University poll shows that former Republican presidential candidate Rudolph W. Giuliani is fast closing in on New York Attorney General Andrew M. Cuomo’s lead in a head-to-head matchup for governor in 2010.

The poll found that the former New York City mayor, who led Manhattan through the Sept. 11 terrorist attacks, is trailing his fellow New Yorker by just six points - a major improvement over last month’s poll that had him trailing Mr. Cuomo by 17 points. Mr. Giuliani has narrowed the gap among independents, too.

Mr. Cuomo narrowly leads Mr. Giuliani 47 percent to 41 percent, “down from a 53-36 percent lead April 6,” the poll reported Wednesday. “Independent voters have shifted from 49-38 percent for Cuomo April 8 to 44-40 percent for Giuliani today.”

Neither of them are candidates for governor - yet. Democratic Gov. David A. Paterson, whose job-approval scores are at historic lows, says he will run for a full term next year, and Mr. Cuomo as of now appears reluctant to challenge him. Mr. Giuliani says it’s “way too early” to decide about running next year.

• Greg Pierce can be reached at 202/636-3285 or [email protected] .com.

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